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Australian homes prove to be a major wealth generator - according to new study

Wednesday, 9 March 2016

The Australian home has proven to be a winning asset class, with the average dwelling value now close to double the amount of debt against it, according to an exclusive new report by Aussie Home Loans and CoreLogic RP Data.

The report shows that home owners with an Aussie panel mortgage in either city or regional areas, have on average accumulated 48.4 per cent equity in their properties, equating to $242,642*.

A price surge in the NSW property market over the last three years has seen the state come out on top, with the average property owner now holding equity of 56.6 per cent worth $358,763. Tasmanian home owners have the lowest equity in their homes, but at a still healthy 32.7 per cent worth $95,427.

Average level of home equity – state by state in percentage and dollar values

Executive Chairman of Aussie, Mr John Symond, said “Our data confirms that property can be a great wealth creator for owners, especially when compared with the current correction being experienced in the share market.

“I believe the best investment both for security and lifestyle is still real estate and I see no reason why this will change over the next decade, especially in view of the lower interest rate climate, lack of housing supply in the major cities and continuing population growth.

“As long as owners are covered comfortably with their mortgage repayments, the equity they have built up in their homes allows them to kick some personal financial goals, like education for their children or renovation”, he added.

Home equity levels vary across Australia depending on the historic pace of capital gains and the rate at which property owners have paid down their debt.

The fast growing Sydney (60.1 per cent) and Melbourne (50.7 per cent) dominate the top two capital city spots as property prices have risen by a compounding rate of 8.3 per cent and 7.8 per cent respectively over the last 20 years, clearly outpacing the growth in mortgage levels."

Meanwhile the lower, but still healthy, equity level of Perth properties (39 per cent) arguably reflect a shorter period of ownership in that city of 9.1 years and the weakness in the state’s mining sector which has placed some downwards pressure on housing market conditions over the past year.

Average level of home equity – city by city in percentage and dollar values

The lower equity levels in Adelaide (39.4 per cent), Brisbane (41.4 per cent), Darwin (37 per cent) and Hobart (35.5 per cent) largely reflect the lower price growth the cities have experienced over the last 20 years.

Mr Tim Lawless, Research Director of CoreLogic RP Data, said “The longer a property has been owned, the more time owners have had to experience price growth and reduce their mortgages. The figures show that areas close to the CBDs have generally performed better as the population becomes more compressed with more medium to high density dwellings”.

The report shows that only two council areas – Whitehorse in Melbourne and Bankstown in Sydney - within the top 20 list of equity generators across Australia have a median property price below $1 million.

Only two Victorian council regions break into the national top 20 list, whilst the bottom five suburbs are all in Queensland.

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The fine print

*Equity was calculated by selecting all those properties for which we know the level of debt outstanding using Aussie’s loan book (as at December 2015). For these properties, we used the current valuation estimate of each property using CoreLogic’s automated valuation process and subtracted the amount of debt outstanding. The resulting equity amount can be expressed in both percentage terms and dollar value terms. The result provides a benchmark estimate of equity levels across the council regions of Australia. Regions with fewer than 25 mortgages held with an Aussie panel lender were considered to be statistically unreliable were excluded from the analysis. NT and ACT have been included on a capital city level only, and the ACT does not have council areas.